Question

Determining the Proceeds from Bond Issues

Madison Corporation is authorized to issue $690,000 of 5-year bonds dated June 30, 2016, with a stated rate of interest of 9%. Interest on the bonds is payable semiannually, and the bonds are sold on June 30, 2016.

Required:

Determine the proceeds that the company will receive if it sells the following: (Click here to access the tables to use with this exercise and round your answers to two decimal places, if necessary.)

1. The bonds to yield 10%	$
2. The bonds to yield 8%	$

Answer 1

Price of the bond = c × F × (1 − (1 + r)-t)/r+F(1 + r)t
C=Interest Rate	F= Face Value	r=Market Interest Rate
Price of Bond= Present value of Interest payments+Present value of the bond
Price of Bond	31050*(1-(1.05)^-10)/.05)+690000/(1.05)^10
	(31050*(1-.61391)/.05)+690000*.61391			663359.79	ans
	(31050*(1-.6139)/.05)+690000*.6139			663359.1
Interest (paid semi annualy)	31050
(9%*1/2)*690000
2)
Price of Bond	31050*(1-(1.05)^-10)/.05)+690000/(1.05)^10
	(31050*(1-.67556)/.04)+690000*.67556			717982.95	ans
	(31050*(1-.6756)/.04)+690000*.6756			717979.50
ans
1. The bonds to yield 10%	663359.79	(if discount factor upto 5 decimal taken)
	663359.10	(if discount factor upto 4 decimal taken)
2. The bonds to yield 8%	717982.95	(if discount factor upto 5 decimal taken)
	717979.50	(if discount factor upto 4 decimal taken)
If any doubt please comment. As the table not given hence upto 4 and 5 decimal
both are calculated